Executive Forecast: The Year of Continued Innovation for the Flexible Packaging Industry
Giancarlo Caimmi, Phd
Windmoeller & Hoelscher Corporation
President & COO,
Senior Industry Analyst, Packaging,
The Freedonia Group Inc.
Senior Industry Analyst, Packaging,
The Freedonia Group Inc.
Flexible Packaging: How do you see 2014 shaping up for the flexible packaging industry?
Pryweller: Not surprisingly, the flexible packaging industry outpaced rigid packaging alternatives in growth during 2013, capturing a higher percentage of demand both in the US market and globally. Flexible packaging, particularly in pouches, continued to elbow its way into new applications where it has taken a larger market share than in the past. That was a nice banner headline for the industry last year, especially for the plastics segment of flexible packaging.
2014 should provide much of the same. We anticipate demand growth for converted flexible packaging to run a little higher than 3 percent in the US market and as much as double that – or 6 percent or higher – in developing areas such as Brazil, China, India, Eastern Europe, and parts of Central and South America. This growth is even higher in China and approaches double-digit sales growth annually. Opportunities in those markets should provide a large push to many in flexible packaging seeking new sales potential. 2014 should be a year for exploring those markets even further.
Franke: As supply chain costs increase and as people look for lower cost solutions, the shift from rigid to flexible packaging is becoming evident. The flexible packaging industry is expected to grow in 2014, in large part by providing solutions that replace rigid alternatives such as metal cans, HDPE and glass containers.
Deamer: The flexible packaging industry has a great future and I believe we will continue to see healthy growth, innovation and more consolidation. The irony of consolidation however, is that as flexible packaging companies get larger, entrepreneurs see opportunities to enter the business by forming new companies to serve niche markets and by offering greater flexibility than the larger companies may be able to offer.....we have seen several new US-based flexible packaging companies appear over the last year or so.
Caimmi: The short term shape of the industry will come as an evolution of the recent past. The forecasted growth will be confirmed, no doubt. M&A involving large players serving major brand owners will continue; meanwhile, the room for small and medium converters will be awarded to new players and to those that have been able to reshape their business quickly. The future is not in holding on but, instead, in the ability to innovate, to delivery consistent quality and to be competitive in pricing. In a few words: Take advantage of new technologies; be flexible; be creative.
FP: What will 2014 be the “year of”? (Innovation, status quo, M&As, etc.?)
Franke: Definitely not status quo. Flexible manufacturers’ needs are evolving as are consumer demands. The need for more sustainable packaging will continue to drive our innovation efforts.
Caimmi: There will be innovation, that’s for sure, it is in the DNA of our young industry; M&A will continue specially for larger scale converters; energy consumption and emission reduction will continue being the target. What I wish it will be the year of is our ability, as an industry, to start catching consumers' attention and change the average perception about flexible packaging.
Deamer: In my opinion, 2014 will be similar to 2013 with some more consolidation and some influences resulting from the still very precarious economic situation around the world.
We do not learn from history and so for sure we will have more “bubbles” resulting in “boom and bust cycles,” possibly made worse in the US by our totally dysfunctional government who are only interested in partisan politics instead of governing this country properly and doing the things needed to ensure steady and sustainable growth.
Pryweller: I think 2014 will really be the Year of Global Exploration. While many large packaging converters have already tapped the developing market for new plants and collaborative work with their brand owner partners, this is the year when many companies will be ready to take bolder steps on their own to open facilities and license new technologies from previously less-explored regions of Asia/Pacific, Central and South America, Eastern Europe, and even Africa and the Middle East. Those regions are just coming out of the latest recessionary trend and must deal with a populace rapidly moving to cities, finding new job opportunities, and in need of packaging that supports their busy, time-constrained lifestyles.
FP: What’s the next hot productor innovation for our industry?
Franke: 2014 will be the year of the premade pouch, and at Mondi Americas we are well positioned to capitalize on pouch innovation. Spouted pouches will be especially useful for infant nutrition, fruit purees and high energy products. Today’s moms increasingly like spouted pouches for baby food because there is no glass that can break, they are light and easy to handle.
Consumer goods manufacturers looking for additional green opportunities will like our new sprayer pouch as an alternative to rigid bottles. Like all pouch packaging solutions, the sprayer pouch collapses after use to reduce the volume of packaging in the waste stream.
Deamer: I am reluctant to make any predictions because they are mostly wrong…however, we are finally seeing more realistic possibilities with digital printing technology after a very slow start since Benny Landa introduced the first Omnius digital web press in 1994.
Hence, I believe that digital printing will slowly become a viable process for some short run products in the next few years, as the cost per impression goes down and speeds and reliability continue to improve.
For sure, technology will continue to amaze us…as just one example, look at 3D printing and what it can do now and what will be possible in the future with this mind blowing technology. Who would have thought 20 years ago that printing (producing) incredibly precise and complex three dimensional objects and assemblies made of plastics, metals and ceramics would be a normal, daily process?
Caimmi: Due to my territory of expertise, I will focus strictly on coating and lamination. There are quite a few targets for 2014, both on a global scale and on a Northern American scale. Globally, innovation has to be primarily focused on adhesives. Solventless lamination is the solution for the majority of the applications while targeting productivity, quality, energy consumption and emissions reduction. The formulation of new adhesives with shorter time to food contact, allowing for reduced inventory time, will push this technology to capture even larger shares.
As well with machines, performances growing in the territory of high speed, adhesives and coatings in general will have to be reliably handled under extreme performance conditions. Machine-wise, in North America, 2014 comes with the significant growth in installations of multi-ply coater/laminators for single pass conversion of complex compounds. This new capacity will bring North America up to speed with those countries already well tooled on the subject (Germany and Europe in general, as an example).
Palevsky: I’d like to say that the cereal aisle is the next market to be tapped, where flexible packaging finally becomes more competitive against the carton, a less efficient format that takes up a large portion of shelf real estate. Yet, we’ve heard that before and, so far, pouch formats for cereal have been primarily relegated to specialty, organic and granola applications. I don’t necessarily see that changing – the cereal box offers nice taste and flavor qualities for the product inside the box, and consumers appreciate the format.
We’ll go out on a short limb and say that fresh produce offers offer a nice growth area for flexible packaging. Recently, there has been a spate of new bags and pouches for fresh-cut produce, everything from carrots and celery to apples, apricots and mangoes. McDonald’s also has embraced the trend by offering cut apples in pouches in many of their stores. What is new is the shifting from conventional bags to handled, stand-up pouches with enhanced graphics, a more consumer-friendly package for such items as grapes, apples and mini peppers. A growing number of produce is also packaged in mesh bags with preprinted film bands or panels that provide advanced aesthetics and offer product information, recipes, or QR codes for traceability.
FP: Just as sustainability has become a part of the everyday business landscape, do you believe food waste is the next thing the industry will need to address? If not, what will be?
Franke: Food waste is high on the list of items the flexible packaging and food manufacturing industries will continue to address in 2014. At Mondi Americas, we believe that shelf-stable flexible packaging will significantly help to reduce food spoilage. In fact, it is part of the whole movement towards portion control concepts such as Single Serve. Just as cheese slices can be individually wrapped to reduce spoilage, so too can flexible pouches allow consumers to store certain foods over extended periods without having the contents perish. The pouches cut needs for refrigeration and freezer space, reducing energy consumption, both at home and in stores.
Deamer: I think I read recently that over 40 percent of food goes to waste....most of it into landfills.
Most of this is avoidable and sorry if what follows is controversial, but much of this waste is created by misguided consumers dumping food far too early because they think it "is past its prime" or because "use by" dates printed on packages are misunderstood, with another big chunk of this food waste coming from restaurants and institutions.
Much of this food is useable, but the logistics of distribution and perhaps even our broken legal system, which allows anybody to sue anyone else for the most frivolous reasons with no recourse, make it cheaper and safer to dump the food, rather than feed the hungry for fear of possible legal action by people claiming to have been harmed.
Yes, we do need to get serious about reducing food waste!
Caimmi: Food waste reduction is perfectly taken care by flex-pack. What is negatively affecting food waste today is what humans do with food. There is the need of a cultural shift that will effectively take place once the attention is off of the “evils” of packaging and onto educating people and organizations about waste reduction.
Nevertheless, improving is always the target in our industry and there is a lot of room for innovation here as well. Increased barrier generated by new generation substrates and coatings, with multi-ply compounds efficiently converted. If our products continue improving and the perception of the advantages of flex-pack are properly dispersed, then it will be an even better looking future.
Pryweller: Absolutely. Food waste is a critical global issue that will not be fading away in 2014. Just look to the work of the United Nations and Messe Dusseldorf and its SAVE FOOD program, which continues to gather companies and countries as partners in the drive to limit food waste in packaging. Or look at the work of Western European countries enacting regulations that limit the size of packages or require that the package be reclaimed by the manufacturer in an extended producer responsibility (EPR) scenario.
These tell us that food waste is a major issue of importance that could lead to more CPG companies adopting policies and standards, as they have with other areas of sustainability. That could mean limits on excess packaging and lead to the creation of set package-to-product ratios, as well as more attention paid to recycling and reuse, which is already a major focus globally. The flexible packaging industry needs to respond to the latter by continuing to look at recycled material and the optimization of the package to the product, as well as new dispensing technologies that evacuate more product. These are interesting times in that area of packaging.
FP: What outside factors do you see affecting/impacting the business and the industry overall (outside factors meaning things that occur beyond your business or flexible packaging industry)?
Franke: Mondi Americas is part of Mondi, the international packaging and paper group, which has major operations in central Europe, Russia, the Americas and South Africa. Because we are part of an international organization, exchange rates and raw material prices have an impact on our business.
We are looking at the new hours-of-service rules from the US Department of Transportation's Federal Motor Carrier Safety Administration. These changes are designed to reduce truck driver fatigue and improve driver safety. However they could increase transportation costs by up to 20 percent.
Beyond that, we are seeing a steady return among consumer goods manufacturers to domestic packaging suppliers. A lot of customers are showing renewed commitment to regional supply bases, and we see this as an important North American packaging industry trend.
Deamer: Outside factors which can impact the flexible packaging industry includes what I consider to be misguided attempts by some groups to ban various types of flexible packaging; one good example of what can happen are the numerous bans being introduced against plastic grocery bags.
Some of these “environmental” groups see ALL plastic packaging as bad and do not understand the tremendous benefits flexible packaging offers regarding product protection and shelf life, especially for food, and how little material is used in flexible packaging compared to other packaging forms.
More education is needed, starting in elementary school, because it is there where the first lessons about “bad plastics” are being taught.
We as an industry, however, also need to face our responsibility to educate consumers about recycling or other safe and inert disposal methods for plastic waste such as “Waste to Energy” programs.
For sure, we also need to be concerned about and involved in the complete “Life Cycle” of flexible packaging and all plastic products, and we cannot ignore serious issues like plastic waste build up in the oceans and the serious affect on wildlife and the environment.
Caimmi: In my opinion, the most important factor affecting the industry is bad press, a factor mistakenly not addressed and overlooked. What “bad press” means to me is quickly explained: According to the large majority of the media reports, packaging is evil. Everybody knows about: plastic bags killing the dolphin; overflowing landfills; limits in recycling.
And we, as an industry are feeling quite guilty and working to fix those problems.
Time out. We, as the flex-pack industry, are the solution, not the problem. It is not flexible packaging that is bad. The very many advantages of flex-pack have never been clearly and honestly brought to large audiences. For politicians, the evil packaging is a very easy headline to capture voters’ attention. For large distributors, it is a good way to distract the attention of the consumer from the environmental impact of the products they are selling.
We, as a community, should spend more effort promoting our technologies. Manufacturing flex-pack has by far the lowest impact on emissions and energy consumption. CO2-equivalent emissions, associated at every stage of logistics related to flex-pack, are by far the lowest compared to any other packaging technology. Volume and weight of waste flex-pack delivers to landfill is negligible. The contribution of flex pack in extending shelf life and reducing food waste is unmatched. And these just to name a few.
We do need to believe in our industry a little bit more, to be more determined as a community to promote the very many benefit of our products, not just to brand owners, but to consumers as well.
Pryweller: The overall economy, both in the United States and worldwide, is the obvious choice as the largest factor affecting the flexible packaging industry. How well the US continues to bounce back from our economic slowdown will be a major guidepost of how well the packaging industry performs – indicators such as unemployment and the jobs market, housing starts, and consumer retail spending (especially on non-necessities) will be worth watching as a gauge on how much disposable income consumers have and how much of it they spend.
Outside of the US market, southern Europe bears particular interest as many countries attempt to overcome the debt crisis and get their economies back to more solid footing. Such countries as Spain, Italy, Greece and France bear watching, as does Brazil and Russia. As opportunities for flexible packaging growth are tremendous in those regions due to the continued transfer to a middle class economy and urbanization, the economies of those areas must be monitored closely.
Outside of the general economy, the cost of materials is always an important consideration, although that has been more moderate recently for plastics- and paper-based flexible packaging. The use of shale gas reserves in the next year few years could especially affect packaging, if it helps moderate or reduce the price of polyethylene and other materials. A similar focus on development of natural materials as replacement for traditional resin bears watching.